“Sell, sell, sell,” advised his colleague from the other side of the restaurant table.

But he decided to hold the linear-low density polyethylene (LLDPE) contract – a wise decision at the time, as prices subsequently rose beyond $1,000/tonne (€750/tonne).

Last week, though, prices on the exchange started to fall.

In the physical market, domestic prices of most polypropylene (PP) and PE grades fell by CNY50-600/tonne ($7.30-87.80/tonne) on 14 April in northern, southern and eastern China, compared with 10 April, according to China chemical market intelligence service ICIS chemease.

“The DCE has contributed to a rise in volatility across the whole of polyolefins as traders in all the different grades are playing the market,” said the trader who took the telephone call.

“China’s domestic prices have fluctuated by $50-100/tonne in 2009 as against $50-40/tonne in 2007. It’s not worth comparing this year with 2008 because 2008 was such a freak year.”

Last year saw huge inventory building ahead of further crude oil price hikes in the first half of the year followed by the second-half price collapse.

Contracts on the exchange are bought and sold every day with the amount of physical deliveries thought to be only a tiny fraction of paper deals, the trader added.

The bulk of activity must be paper trades because of the quite staggering increase in volume versus consumption.

“Almost 24m tonnes of linear-low density polyethylene (LLDPE) was traded on the exchange in the first two weeks of April, more than forecast global demand in 2009,” wrote UK-based chemicals consultant Paul Hodges on his blog, Chemicals and the Economy.

“By comparison, just 150,000 tonnes was traded in the same period last year.”

The surge in the DCE is being much-discussed as is the big rise in China’s polyolefin imports.

LDPE shipments to China rose by 181.47% in February this year over the same month in 2008, according to data from China Customs.

The increase in high-density PE (HDPE) was 120.94% with linear-low density (LLDPE) registering a 162.17% increase.

Polypropylene imports rose between 82.15% and 140.10%, depending on the grade.

But a direct link between the DCE and increased imports seems unlikely “as it would be too expensive to import and then trade on the exchange. Local material makes more sense,” said a second polyolefins trader, who is also based in Singapore.

Higher prices in China compared with the West was behind the big jump in imports, said several market participants and observers.

Aggressive Asian petrochemical operating rate cuts late last year which were maintained in January, restocking by end-users since February and higher crude and naphtha costs have driven prices higher, they added.

Another factor behind the price surge could have been the huge boost in lending by China’s state-controlled banks on very easy terms.

Traders might have used the cheap loans to buy physical cargoes of polyolefins, speculate on the DCE and quite probably on local stock markets as well.

“Speculation is in our blood, but it’s the amount of gambling that’s taking place at the moment that’s making everyone a little jittery,” said the second trader, who is ethnic Chinese.

“Everyone is scrambling to take advantage of what could be a bear-market rally in chemicals and other commodity prices and in equities.”

“I think a lot is in the hands of the traders who have found it very easy to borrow money,” he added.

“I used to sell 80% of my material to end-users and 20% to other traders in China. These percentages have reversed.”

The guessing game over inventory levels is creating even more anxiety than normal because the stakes are so high.

“Business has been good. I wish I could have produced more and exported more to China,” said a source with an Americas-based polyolefin producer.

Large volumes of PE have been sold by US Gulf coast producers to China, he added.

“Shipments have risen because of ethane being cheap relative to naphtha and strong prices in China. (Most US PE production is ethane-based).

“I believe US ethane will remain a very competitive feedstock over naphtha for the next two years because of falling natural gas demand and greater availability.”

The DCE had become an important factor in influencing local pricing, he added.

“I think petrochemical pricing in general was in any event heading for a downward correction after June on cheaper crude, greater naphtha availability, the end of the Asian petrochemical turnaround season and new capacity.

“We might see a sharp correction before then if the DCE dips very sharply and if traders have taken too many risks in the physical market. The trouble is nobody really knows.”